At Large: More of the same is the SSA strategy

As of the end of September, three-quarters of the way through the Steamship Authority’s year, passenger volumes declined, compared to 2010, by 1.7 percent, auto traffic fell half of one percent, and trucks (freight) dropped 1.3 percent. These are the numbers for traffic to and from both islands. Figures for Vineyard service alone contributed more to the traffic volume decline than Nantucket did.

It’s not merely a bad year. In fact, it’s been a bad decade for the Steamship Authority’s travel business. The 2011 numbers are consistent with a decade-long trend. Passenger traffic fell from 2.9 million in 2000 to 2.7 million last year. Vehicle traffic dropped from 601,000 in 2010 to 595,000 last year. The real estate bubble in the first half of the decade accounted for a counter-trend in freight (truck traffic).

It’s an anxiety-inducing trend for any business, to see customers walking or driving away. Most businesses would attack this problem by right-sizing the organization, making moves to increase market share, squeezing out costs so that they can live through a downturn, even a long one, with flattening revenue and no pricing power.

The Steamship Authority is not most businesses, and it does have pricing power. Although business has been disappointing this year, the boatline reports that passenger revenue for the first three quarters jumped 5.2 percent, auto revenue rose 1.6 percent, and freight revenue, despite the real estate collapse, increased 2.9 percent.

And the story — serve fewer customers, but grow revenues nevertheless — has been sensational, talking dollars only, for the entire first decade of the 21st Century, while traffic volumes slid.

Operating revenues rose from $59 million in 2000 to $80 million last year. And boatline assets have increased in value significantly — that’s vessels, real estate, parking lots, etc. — from $96 million in 2000 to $167 million in 2010.

How have they managed to do less and charge more, you ask. Have they radically streamlined operations, refashioned their fleet to add flexibility and squeeze out costs, lopped off management overhead, borrowed less or refinanced to reduce debt service, put a vise grip on the success of private competitors over which they have legislatively granted control?

Nope. The remarkable success of the islands Lifeline has been built on rate hikes. And, absent a serious rethinking of the way the boatline does business, its future success will also depend on rate hikes.

Between 2008 and 2010, total operating revenues declined from $81 million to $80 million, as operating expenses fell from $79 million to $76 million. These changes allowed the line’s operating income to rise during this three-year span, from $2.2 million to $4.1 million.

Looking just at comparisons between 2009 and 2010, total operating expenses rose 1.9 percent. The boatline attributes the increase to vessel fuel costs, payroll, health and welfare expenses, legal expenses, and payroll taxes.

“Vessel operating expenses increased by about $1,692,000, or 8.4 percent versus 2009. This increase was chiefly due to higher payroll expense and fuel oil expense,” the boatline reported this spring. Payroll jumped 1.2 percent, and fuel costs rose 26.8 percent in 2010, compared with fuel costs for 2009. Payroll costs in 2010 consumed nearly 58 percent of operating expenses, a share that is slightly smaller than historical performance but higher than the comparable value for 2009, about 55 percent.

Debt service for 2010 was about $4.5 million, up from $4.3 million in 2009. Total bonds outstanding at the end of 2010 were about $62 million. The authority’s current borrowing limit is $75 million.

The boatline knows who butters its bread. “Demand for the Authority’s services is mainly affected by the overall economic activity on Martha’s Vineyard and Nantucket, both seasonally and year-round,” this spring’s annual report explains. “The economic activity is a reflection of the overall decline in construction on the islands as the reduction is more prominent in the larger trucks being carried. Other factors, such as weather-related conditions, capacity constraints, and operational limitations can also have an impact on the authority’s annual ridership volumes.”

Forthrightly, the Steamship Authority explains how it deals with the variation in economic activity on the two islands?

“In order to ensure sufficient income to meet the cost of service in 2011,” the report continues, “the authority members approved certain rate increases, effective January 3, 2011, that are expected to raise $2.250 million in additional operating revenue based on last year’s traffic volumes. These rate increases were needed to offset the expected increases in operating expenses, primarily vessel fuel oil expense, wages, benefits, and maintenance expense.”

Oh, and the Steamship Authority collected $902,000 in embarkation fees from passengers in 2010. Oak Bluffs got $105,456, Tisbury $244,229. The total is apportioned among all the port communities.

The strategy may be expressed this way: If the customers won’t come in the volumes we need, we’ll charge the poor buggers who do come more.